Sales of Receivables and Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2017

Sales of Receivables and Servicing Rights

Activity Related to Mortgage Banking Net Revenue

Information related to residential mortgage loan sales and the Bancorp’s mortgage banking activity, which is included in mortgage banking net revenue in the Condensed Consolidated Statements of Income, is as follows:
		For the three months ended		For the nine months ended
		September 30,		September 30,
($ in millions)		2017	2016	2017	2016
Residential mortgage loan sales(a)	$	1,593	1,846	4,740	4,591
Origination fees and gains on loan sales		40	61	106	156
Gross mortgage servicing fees		56	49	152	151

Represents the unpaid principal balance at the time of the sale.

Changes in the Servicing Assets

The following tables present changes in the servicing rights related to residential mortgage and automobile loans for the nine months ended September 30:
($ in millions)		2017
Balance, beginning of period	$	744
Servicing rights originated - residential mortgage loans		99
Servicing rights acquired - residential mortgage loans		109
Changes in fair value:
Due to changes in inputs or assumptions(a)		(15)
Other changes in fair value(b)		(89)
Balance, end of period	$	848

• Primarily reflects changes in prepayment speed and OAS spread assumptions which are updated based on market interest rates.
• Primarily reflects changes due to collection of contractual cash flows and the passage of time.

($ in millions)		2016
Carrying amount before valuation allowance:
Balance, beginning of period	$	1,204
Servicing rights that result from the transfer of residential mortgage loans		55
Amortization		(96)
Balance, end of period	$	1,163
Valuation allowance for servicing rights:
Balance, beginning of period	$	(419)
Provision for MSR impairment		(125)
Balance, end of period		(544)
Carrying amount after valuation allowance	$	619

Fair Value of the Servicing Assets

The following table displays the beginning and ending fair value of the servicing rights for the nine months ended September 30:
($ in millions)		2017	2016
Fixed-rate residential mortgage loans:
Balance, beginning of period	$	722	757
Balance, end of period		831	597
Adjustable-rate residential mortgage loans:
Balance, beginning of period		22	27
Balance, end of period		17	22
Fixed-rate automobile loans:
Balance, beginning of period		-	1
Balance, end of period		-	-

Activity Related to the MSR Portfolio

The following table presents activity related to valuations of the MSR portfolio and the impact of the non-qualifying hedging strategy:
		For the three months ended		For the nine months ended
		September 30,		September 30,
($ in millions)		2017	2016	2017	2016
Securities gains, net - non-qualifying hedges on MSRs	$	2	-	4	-
Changes in fair value and settlement of free-standing derivatives purchased
to economically hedge the MSR portfolio(a)		1	(16)	16	133
MSR fair value adjustment(a)		(34)	-	(104)	-
(Provision for) recovery of MSR impairment(a)		-	7	-	(125)

(a) Included in mortgage banking net revenue in the Condensed Consolidated Statements of Income.

Servicing Assets and Residual Interests Economic Assumptions

The key economic assumptions used in measuring the interests in residential mortgage loans that continued to be held by the Bancorp at the date of sale or securitization resulting from transactions completed during the three months ended September 30, 2017 and 2016 were as follows:
		September 30, 2017				September 30, 2016
	Rate	Weighted-Average Life (in years)	Prepayment Speed(annual)		OAS Spread(bps)	Weighted-Average Life (in years)	Prepayment Speed(annual)		OAS Spread(bps)
Residential mortgage loans:
Servicing rights	Fixed	7.6	9.2	%	499	6.6	11.7	%	564
Servicing rights	Adjustable	2.5	35.1		650	2.8	30.0		681

Sensitivity of the Current Fair Value of Residual Cash Flows to Immediate 10%, 20% and 50% Adverse Changes in Assumptions

At September 30, 2017, the sensitivity of the current fair value of residual cash flows to immediate 10%, 20% and 50% adverse changes in prepayment speed assumptions and immediate 10% and 20% adverse changes in OAS spread are as follows:
					Prepayment						OAS
					Speed Assumption						Spread Assumption
			Fair	Weighted-Average Life				Impact of Adverse Change on Fair Value			OASSpread		Impact of Adverse Change on Fair Value
($ in millions)(a)	Rate		Value	(in years)	Rate			10%	20%	50%	(bps)		10%	20%
Residential mortgage loans:
Servicing rights	Fixed	$	831	5.8	11.8	%	$	(37)	(72)	(161)	502	$	(16)	(32)
Servicing rights	Adjustable		17	3.3	25.2			(1)	(2)	(5)	784		-	(1)

(a) The impact of the weighted-average default rate on the current fair value of residual cash flows for all scenarios is immaterial.